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How to Remove Your Name from CIBIL’s Defaulter List

Let’s assume you’ve borrowed a sizeable loan from a financial institution. You mapped out an entire repayment plan. Although, things don’t always work out as planned. That’s when you start missing your due dates, making late payments, and before you know it, you start defaulting on your loan.

Now, there are several consequences you have to deal with when you default on your loan. To begin with, your lender will report your repayment behaviour to the TransUnion CIBIL (formerly known as CIBIL). Once your missed payments start reflecting in your credit history, it will drastically bring down your credit score.

This will lead to rejections of any future applications, as you’re viewed as a risky and irresponsible borrower by potential lenders.

To avoid this pesky situation, you need to know how to remove your name from CIBIL’s defaulter list. However, before that, you need to understand the basis of a defaulter list and why it was introduced by the Reserve Bank of India in the first place.

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Introduction of the Defaulter’s List

In 1994, the Reserve Bank of India introduced a scheme to include the collection and dissemination of defaulter information. It started with borrowers who have failed to pay Rs.1 crore and above. Then, in 1999, RBI started collecting and disseminating information of defaulters who crossed Rs.25 lakh and above.

To make the classification easier, RBI tagged defaulters into two categories—wilful and non-wilful. The purpose of this scheme was to figure out who was genuinely in debt and who was deliberately not clearing their dues.

For instance, a wilful defaulter is someone who:

  • Deliberately makes no payments, despite having a good net worth and cash flow
  • Siphons funds
  • Misuses the finances borrowed for reasons not stated
  • Falsifies information
  • Removes securities without the bank’s knowledge
  • Conducts fraudulent transactions

In 2002, RBI requested banks, financial institutions, and state financial corporations to send defaulter data directly to the TransUnion CIBIL. This data would include suit-filed accounts of Rs.25 lakh and above, as well as Rs.1 crore and above.

Currently, TransUnion CIBIL maintains a database of all suit-filed and non-suit-filed accounts, out of which only suit-filed accounts can be accessed on their official website by the general public. For non-suit filed accounts, you need a username and password to access information.

For suit-file accounts, the data is categorised under companies, banks, and geographical locations. Only a certain portion of the database is open to the public, which is the wilful defaulter list and defaulters of Rs.1 crore and above. The purpose of introducing the defaulter list was to keep other entities in the loop and ensure they don’t issue loans or credit to defaulters.

How to Remove a Suit-filed Account From your CIBIL Report

If you have defaulted on your loan, your bank or financial institution will file a complaint to a court, which leads to a lawsuit. This is so the bank or FI you have borrowed from seeks economic relief. If you have crossed the Rs.1 crore threshold or wilfully crossed the Rs.25 lakh threshold, your data will reflect in the public database.

So, how do you tackle a suit-filed account that has been reported to CIBIL?

Reach out to your lender and request them to consider an out-of-court settlement, where you pay the entire amount due. If your lender does consider this option, they will have to report this to the court and withdraw the lawsuit filed against you. However, the case will be withdrawn only once you’ve settled your loan. Your bank is also required to report this to CIBIL so they can update their records.

This may seem convenient and a little too easy, but there is something you should be aware of. If you have received a concession in payment of your dues, your CIBIL report will reflect a ‘settled account’, even if the lawsuit is dropped. It will remain on your report for 7 years. This can cause issues for you in the future, as potential lenders will refrain from approving your loan or credit applications.

In case you cannot pay the amount you owe your lender, you can always justify your reasons in court. The bank may then offer a settlement amount, which you will have to pay, no questions asked.

How to Avoid the Defaulter’s List

Several factors can lead to your defaulting on your loan—medical emergency, loss of a job, loss in business, etc. If you think you may not be able to clear your dues, there are certain steps you need to take to avoid a suit-filed account tagged against your name.

One of the first things you can consider is extending your loan’s tenure. Approach your bank, justify why you require an extension, and ask them to increase it. Not only will this give you breathing space but it will also reduce your EMIs significantly. This will help you clear your dues and avoid defaulting too.

You can also ask your bank to defer your EMI payments for a few months. This can be especially helpful if you’ve lost your job or are dealing with a medical emergency. While it’s not common for banks to approve, if you negotiate properly, you may get a good deal. Do keep in mind that deferring your EMIs may attract charges.

At the end of the day, you need to try your best to avoid getting on the defaulter’s list. If you still think there are chances you may not clear your dues, look for a viable solution. Have a conversation with your lender and look at the options they’re willing to offer.

Once you have defaulted on a loan, there’s no going back, especially if it’s wilful. There are legal consequences that can damage your credit score terribly. If you’re struggling with your loan, don’t hesitate to ask for assistance and advice.

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